When Fidelity Investments was founded in 1946, its main goal was to make it easier for individuals who weren’t avid stock market followers to invest. Edward C. Johnson II, founder of Fidelity Management & Research, focused his efforts on mutual funds.
At a recent FinTech Sandbox event in Boston, Fidelity CEO Abigail Johnson discussed the history of the company’s innovation unit; some of the organization’s most recent innovations; and its goals for the future. Edited highlights are below.Mutual funds remain a large part of Fidelity’s business today (its Fidelity Contrafund has accumulated about $33.24 billion in assets and is considered by NASDAQ as one of the top mutual funds for annualized total return). And the privately-held company also remains focused on its original goal — to reimagine the way people invest.
We didn’t get to where we are today without pushing ourselves and asking ourselves always, on an ongoing basis, what in the financial services arena can we reimagine? What can we do differently or better than it’s being done today? That’s been our tradition — to embody that thinking all the time…and continue to do what we already do better, but reach to do new things in a new and redefined way. …
Back in the 90s, my father [Edward Johnson III] was CEO, and he felt strongly that there should be a cadre of people in the organization who were charged with researching technology and what was out there. … Thinking about what’s out there and then asking themselves, “Are any of these things applicable to our business?” That’s how FCAT [the Fidelity Center for Applied Technology] got going. …
We’ve had that tradition for a long time, and we’ve had people in the organization who have come out of other jobs, spent time in FCAT, gone back to other jobs, and people who have been in FCAT for years. It’s a very collaborative organization. There have been goals to collaborate with people across Fidelity and not to be a complete island. … It’s expanded. We now have Fidelity Labs, which is separate but similar, and again embarked on pushing the envelope with new ideas, more often around incubating new business ideas that embody or use new technology. …
On student loans, our internal HR teams were charged with what we [could] do to make sure that we have a 21st century associate experience here in Fidelity, and how do we make sure that we’re attracting and retaining the best talent that we can — particularly younger talent that might be expecting different things than what some of our more mature talent, age-wise, does.
The number one thing that came up was helping people to figure out how to address the burden of student debt. That led us to think about how do we build mechanisms to help people better manage their debt? … We started talking to other companies and hearing that a lot of companies are thinking about how to do this. That morphed into building our student loan platform, which is now in the marketplace. …
[Just within Fidelity, this platform has saved employees that have student loan debt $22.5 million and 35,000 years of payment.]
The Gig Economy
With bSolo, [Fidelity’s offering for self-employed workers], that really came out of a combination of ideas. We do scenario planning with groups of our associates where we challenge people to think about the future.
[Several years ago,] one of the themes that came out of a series of scenario planning and exercises we did across the organization [regarded] contract workers.. .. How are we going to serve the needs of those people? Because our traditional retirement business is built around serving people in a corporate environment. So we were asking ourselves, “How do we do the same thing for people who, because of their choices, are not part of a corporate environment? How do we build an offering that makes sense for them?”
Like a lot of companies, [AI & machine learning] has been an area where we really accelerated our efforts tremendously. I work with the teams regularly to review use cases that we’re working on for our AI efforts. I spend time with the team talking about how we build the infrastructure to house the right data environment…[and] having the right tools to be able to do the real-time analytics that we need to do to achieve a level of personalization that we believe customers are going to be expecting in the future. …
So we’ve begun rolling out a chatbot for our website to answer questions. Just the other day I reviewed the team’s work on how we’re going to do a better job with the Fidelity.com search capability, so we can anticipate better what are the things [you are really] looking for when [you] type in common terms into our website search box? It’s exciting. It’s really about getting deep into our customers’ heads and understanding what their real desires and needs are.
Virtual Reality & Empathy Training
Our teams are going hard at [virtual reality] as well. We’re working with Amazon Sumerian [a platform for building AR and VR apps,] and we’ve got a virtual financial advisor, her name is Cora… I’ve interacted with her a little bit, and she’s quite helpful…
The team has also done some really interesting work that people outside of the organization wouldn’t see, but is extremely valuable to developing a better experience for our customers… and that’s a program around empathy training for our representatives. I had a chance to give the training a trial run and it’s really great. [You have the] chance to be presented with all different types of people at all different stages of their lives facing all different kinds of situations and have a simulated conversation, which is partially about how you help that person find a point-of-view for a technical solution, but equally as much about trying to understand them and…[make] them feel confident that you understand what they’re going through and that the solutions and options that you’re going to suggest are actually reflective and appropriate for their needs.
One of our core beliefs is that the financial services industry is not going to go 100 percent electronic. Over and over again, when we study our customers, we find that most people want to have a conversation on occasion with a real person about their financial situation, or at least know that they could. That’s important to almost everybody. So we believe in the importance of making people available to talk to our customers.
Blockchain & Cryptocurrency
A few years ago, myself and a few other senior executives here were just curious about what was going on with Bitcoin… We started getting together to talk about [it and understand it.] Even in the very beginning it was a complicated, abstract concept, and we [felt we] should get together amongst ourselves and talk and try to figure this out.
That led to having regular meetings and reaching out around the community to invite outsiders in to come talk to us about what they were doing. And that led to us launching a mining operation, which seemed like a dubious concept at the time — but the price was something around $180 when we started the mining operation. We never thought we’d make money, but we thought it would be a good idea because we’d get in at the ground level and learn something. It was helpful in having that as an operation to starting to build a team, and [have] something to focus on… Lo and behold, the price goes up and all of a sudden we’re making money.
[We started by] building a very long list of use cases for Bitcoin, Ethereum, other cryptocurrencies, or potentially just raw blockchain technology. Most of them have been scrapped by now or at least put on the shelf, and the things that actually survived were not necessarily the things we expected.
But we were trying to listen to the marketplace and anticipate what would make sense. The first thing we got out into the marketplace was our donation capability through Fidelity Charitable, and that was a surprising hit. But it worked out, because there were so many people who were newly, incredibly wealthy though Bitcoin who were looking to become philanthropists, and we made it really easy for them…
Since then, we’ve [gone] back to our roots, thinking about what’s really the foundation of this business? We’ve got a few things underway, a few things that are partially done, and partially on the shelves. We hope to have a few things to announce before the end of the year.
Index Funds and Deflation in Financial Services
There’s a lot of thinking going on here at Fidelity and at other companies around…index investing, and the reason people are focused on it is because that’s the way to keep fees as low as possible. There’s a big market for that right now.
So it’s a trend that’s going to continue. It’s based on this larger macrotrend which is deflation in all of financial services… Generally that’s really good for consumers.
The more great technology that is out there that enables us to be able to run things more efficiently, then we can continue to take costs down. Our philosophy, and there are others in the industry that share this philosophy [is that] the way to win in this industry is to provide more value to people all the time. The less you can charge for your services, the more value you’ll be able to provide to people, and your business is going to do better.
That cycle is going to continue, and right now we’re looking at doing more of our core processing in the cloud…to lower our overall costs…
Personalization and Protection
[Data and security] is a huge issue for us. And it’s kind of the flip side of AI and data analytics. People really like it when you personalize their experience. So like other institutions, we’ve been on a mission to do that for some time. However, it’s raising issues that I think we didn’t initially anticipate, but we are now very deep into being concerned about.
Our industry has more at stake than any other industry in looking out for people’s identity… Right now in all business, it’s helpful to try and gather as much data about people that you can. It’s one thing to gather as much data about somebody around their shopping preferences or what kind of soap they like to buy, as opposed to data related to their financial life.
When you’re talking about someone’s financial life, there is a tremendous amount of personally-identifiable information that keeps your identity secure. And so the question is, how do you provide all of the online digital capabilities that the market is going to expect, but in a really secure way? Our biggest concern of late has been…credential sharing — people who share credentials [associated with their financial accounts] with a third-party provider to try and take advantage of their services. At the time, they unwittingly were sharing huge amounts of information that they didn’t realize they were sharing. People are starting to get tuned into this issue, especially with the advent of GDPR…and the California privacy regulations…
We’ve been encouraging people to use soft tokens [a type of two-factor authentication]. If you really want your money to be secure, that’s the best way to do it. It’s not as convenient. We’ve rolled out second-factor authentication, which makes things a lot tighter. The downside is, it creates a little friction in the experience. So this is an area of intense focus for us.
Culture and Clubs
We’re always looking for talent. One of the things we’ve discovered is [that] there are hidden talents in our community that we don’t always know about. We’ve formed a series of clubs as a way to engage people in their aspirations, and give them an opportunity to connect with other people who have the same aspirations… Our first club was the Bits & Blocks club [focused on blockchain, our second club was an AI/Machine learning club, and we have a whole slew of other clubs. It’s an opportunity for associates to hear speakers, and to engage in meetups in person or virtually around the areas of interest that they have. It’s fun for associates, but it also gives us a way to know who is interested in what, so when opportunities come up, we can loop people in…
As part of those clubs, the clubs all have education agendas, so that it’s a way for individuals to be able to…learn about new things. Like most big companies, we have programs around getting certifications, programs around learning new capabilities, programs around bringing people in and having specific training around building skills.
It’s a combination of us providing the actual tools and creating a culture that’s a learning culture. That’s something that is really important for us because our business grew like crazy through the 80s and 90s and we kept doing a lot more of the same, and that made us successful. Now, the rate of technology change is way faster than it was in those decades.
So the program for us now is [that when] you come to Fidelity, you have to expect change. We will give you the tools to create change for yourself and your development, but you have to want to do it, and you have to expect that we will be changing with the rate of change in the industry… It’s a challenge but [also] an opportunity, because we’re going at it in a holistic way, meaning around the specific capability as well as building a [supportive] culture…
If it’s not fun, make it easy
Inertia is profound in our industry. And because financial services is an industry that doesn’t have a high “fun factor,” people tend to be anxious to engage in financial planning. We have to coax people to want to be engaged in financial planning. Try to make it easy for them — make it pleasant and generally palatable. When you say to most people, “Oh, why don’t you spend your free time thinking about your retirement?” you get a big thud. It’s not surprising that almost anything new [that we introduce] takes a while to transition…
Scale is critical. We focus a lot on building scale around our repeatable processes, and there’s been tremendous deflation in financial services for over a decade now, and that pressure, I believe, will continue. So it’s really important for all of the standard processes around opening an account, servicing an account, all the things that are not that exciting, to be really efficient…
The backbone of the financial services industry is still very much [running] on aged technology and it’s very interconnected, so it’s not that one company can just change it. It requires everybody to want to go down this path towards a more efficient financial infrastructure.